Entries from October 2012 ↓

Flatlanders

Nine days ago, 431 Buckwold Cove came on the market in a city seriously bereft of coves. Replete with a garage grafted on the front, stick tree in the front yard and giant vibrating hot tub in the back, it’s the poster house for suburban kitch. But for years now, this is what the overclass of Saskatoon has wanted.

Meanwhile this pathetic blog has been peppered with comments from horny ‘Tooners about how real estate will stagger and stutter everywhere but in the prairie city, where (as I write this) it’s minus six with two inches of snow on the ground. Everybody, apparently, wants to move there. Right.

Actually it appears reality has arrived. The local real estate cartel was forced to announce some days ago that for the first time since 2010 sales tumbled in back-to-back months. “There are concerns in the market place that recent changes to mortgage rules would have a significant impact on the market however while this may be true in some Canadian markets, I believe the economic position and population growth of Saskatchewan mitigate this,” says a brave spokesguy. “Markets like Toronto and Vancouver have experienced unrealistic gains due to foreign investment and are now experiencing significant corrections. Unfortunately most economists paint the entire country with the same brush, if the real estate bubble is bursting in major Canadian markets it shouldn’t be assumed that it holds true for us.”

But it sure looks that way. As I’ve said a few times, every market is unique, but none is different. There will be no escaping the deflation of residential real estate. So sales in Saskatoon are down and listings are up. Shortly there will be a seven-month supply, which officially makes it a buyer’s market. But I wouldn’t be writing offers anytime soon.

The Buckwold Cove property is a case in point. Realtor Vaughan Krywicki has done all he to fete the fabulous features of this place (“…underground sprinklers with automatic timers in the front & back, as well drip system for trees & garden area, plus the yard lights are all on timers, as well the storage shed is wired and has lights inside…”), and now has opted for a so-called Dutch auction, reducing the asking by $1,000 a day.

“I’ve been watching the listing since I came across it on the 17th of October when the house was listed at $426,000,” says blog dog Steven. “Checked in a few days later to see if the price would really change. The price was still the same so I fired off an email to the realtor stating his listing was somewhat fraudulent since no price change had occurred. Today I decided to keep this realtor on his toes by checking it again. Price has dropped to $420,000, but it is 9 days later! So the price should be more like $417,000.

“I can’t do it myself, but this realtor needs to kept on his toes with adjusting that price daily. I think it’s very entertaining to see a daily price drop at a rate of a thousand per day.”

Well, Steve, you little Saskatoon Disturber, now young Vaughn will have an army of eyes on him for this listing, as we all watch to see when a greater fool buyer is flushed from the frozen tundra.

Why do we care about a market with just 235,000 people where wind chills of -60 were once recorded and the river flows the wrong way? We don’t. Other than The Sheepdogs, of course.  Plus real estate delusion — since this isolated city provides a great example of how people can bid up the price of homes simply by selling them to each other after watching house porn on Global News. Net population growth in the past year was less than 7,000 people and the average household income is 30% lower than that of Calgary.

Yes, Saskatchewan has oil, gas, potash and uranium. The price of farmland swelled massively in recent years. Speculation’s rampant, and not a week goes by that someone doesn’t email me asking if they should buy a quarter section. (No.) Others think grabbing a piece of the bald prairie is a genius move, given what’s happening to food prices. I hope they’ve heard of climate change.

We spend a lot of time on this site talking about bubbles in the GTA and the Lower Mainland, where population and media attention is focused. But the slaughter of the innocents in tertiary markets like Saskatoon could eclipse any bloodletting in the Big Smoke. After all, there are only so many available buyers in a small city floating in a sea of flat emptiness.

By the way, what would you pay for this house?

UPDATE: Saturday Oct 27, 5:30 pm ET: Seventeen hours after this post was published, the listing has apparently been cancelled by the sellers. Agent Krywicki writes to a prospect  – “The sellers weren’t getting as much activity as they had hoped for. The house has been taken off the market for now. I may be able to still show it to you if you’re interested?” I think not. — Garth

Glory days

Weather forecasters are calling it the Frankenstorm. “We don’t want to hype this thing too much,” one of them said a few hours ago, “but it has the potential to be the worst in a century.” That would mean $5 billion or so in damage from New York to (maybe) Toronto.

Hurricane Sandy is a handy metaphor. It’s gigantic, natural, ugly, unstoppable and you know misery will be left in its wake. What else would so perfectly describes the Boomers? These wrinkly isotopes have blasted their way through the economy for the past six decades and the biggest blow could be yet to come. The implications for real estate – and their adult children – are huge.

First, remember that it was the Boomers, all nine million of them (a third of the population), who created a demand wave in the Seventies and Eighties, creating inflation, stupid housing prices and Cindy Lauper. Today you’d think they’d be rich, since they sucked up all the best jobs, binged on real estate and lived their working lives amid constant income gains and economic expansion.

But, sadly, just the opposite now seems true. Boomers are broke. Or damn close. Consider this:

Over 70% of Boomers have no corporate pension. And yet over half of people aged 50 to 59 have accumulated less than $100,000. What the hell do they think they’ll live on?

Almost 75% of people did not contribute to an RRSP last year. The average savings rate was 20% in 1982. Thirty years later it’s barely over 3%.

Over 60% admit they’ve failed when it comes to retirement preparedness.

Over 50% of folks in their 60s will be retiring with a mortgage to pay. Almost 30% expect to still have one at age 70.

The average income for retired Boomer families now (over 65) is a measly $37,400. The average CPP payment for retirement is a mere $529.09 a month. The average OAS is $514.74 monthly. Who actually believes they can live on this, and say they are enjoying life?

And yet 70% of Canadians, and closer to 90% of Boomers, own real estate.

Which brings us to the stat which should terrify their children (and every homeowner): A third of all Boomers say they’ve only one way to fund their retirements, which is by selling off their real estate. I suspect the number who will be cashing out is far higher, but this alone amounts to about a million houses hitting the market – when housing’s already going into a funk. By way of comparison, the total number of homes sold in Canada last year was 456,749.

Of course, all those houses won’t get listed at once. It’ll take a decade or so for the wave to sweep through, but it will likely happen as interest rates edge higher and house prices continue to be impacted by a slow economy, swampy incomes, tighter credit and off-the-chart levels of household debt. I’ve said before on this blog that demographics is the elephant in the room everybody’s ignoring, including the government. Yesterday’s news that plans to pay off the national debt have been pushed back by at least 20 years (and even that is a fantasy) should give you an idea of what lies ahead.

Of course the burning question is who’s going to be buying these million Boomer houses, and at what price? Will the wrinklies today with fat houses but scant savings and no pension be able to raise enough to stagger through until their eighties and beyond? And what about the 52% of Baby Boomers who say they’ve put zero away for long-term medical care? Do they all think they’ll just keel over?

Eighteen years ago I wrote a book pegging 2015 as the start of a retirement crisis based entirely on demographics and a Boomer love affair with real estate. Little did I know that in 2012 we’d have record home ownership and record debt at the same time. I never imagined the savings rate would collapse or half the people hitting 60 would have less than a hundred grand invested plus a mortgage in retirement. In other words, nobody listened. Or, not enough.

Obviously if you’re a Boomer with most of your net worth in a house, waiting to sell means you might have to develop a taste for Alpo. Five years from now you could be shocked at what somebody’s willing to pay for that particleboard palace in the burbs. If I’m right, we’re in for a long stretch of asset deflation and price inflation. In a world like that you need income and liquidity.

At the event in Toronto on Monday I told twelve hundred people to expect this shift. From the dominance of the middle class to its demise. From the accumulation of stuff to the ascendancy of cash. From real commodities, be it houses or metals, to financial assets.

The Frankenstorm may miss us. Boomageddon won’t.